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Pakistan Money Market Review

Updated on Oct 09, 2000

The interbank market was firmly hit with a tight monetary policy, by the SBP, this week. We had forewarned about this in our last weekly, which came in the form of the Cash Reserve Requirement (CRR) of banks being increased by 2.00%, effective from the 7th of October, 2000. Banks have been allowed to maintain a minimum of 6% on a daily basis but the average for the reporting week should work out to be 7.00%, of their total demand and time liabilities (DTL). The last time the SBP had adjusted the CRR was on the 12th of July 1999. This news was made public after the cut-offs in the latest T-Bill auction were raised by slightly more than 200 b.p.s. Having brought the one year cut-off to 11.50%, it became apparent that the discount rate was not to stay at the 12.00% mark. Coupled with the news of the CRR, SBP also brought up the discount rate to 13.00%. The entire exercise of increasing the CRR caused the market to experience a liquidity outflow of approximately Rs. 22 billion, since the total DTL of the banking sector stands at an estimated Rs.1.101.20 trillion.

The short term market rates having remained firm and at the peak level of 12.00%, saw new overnights taking place at 13.00%. Call overnight deals were also reportedly conducted as high as 15.00% to 16.00%. The term market reflected a state of panic with term rates shooting up drastically. Trades in the one month tenor were initially reported at 9.50% early in the week, but the auction result soon caused bids and offers to soar upto 11.75% and 12.00%, respectively. But the increase in the discount rate to 13.00% coupled with the more serious augmentation in the CRR, led to sheer panic in term repo levels. The 1 month tenor was initially reportedly traded at levels over and above the discount rate in the band of 13.25% and 13.50%. Such was the magnitude of this panic that even longer periods such as 3 months and 6 months, were not immune to this spike. Trades in these tenors in the wake of these announcements by the SBP, were noted at 13.00%. It is hard to believe that during the start of the week, both the three and six month quote were moving in the band of 9.75% and 10.25%. Banks having had the foresight to have covered their three and 6 month positions early on in the range of 10.00% and 11.75%, respectively are clearly in for a windfall; as the situation after the auction result turned unpredictably and severely bullish. A total amount of Rs.11.50 billion was accepted in the auction resulting in the cut-offs being brought up into double digit levels of 10.50%,11.00% and 11.50% for the three, six and twelve month instruments, respectively.

According to official estimates a total shortfall of ranging between Rs. 30-35 billion was witnessed at the end of the week, with majority of this amount attributed to the outflow on account of the increase in the cash reserve requirement. This discounting figure is unprecedented and the figure rising further with the progress of the week (on account of reserve averaging) cannot be ruled out. Changes such as the ones witnessed the past week have certainly taken the market by surprise. However, both the primary and the secondary market rates clearly reflect that some market players anticipate further changes from the SBP, with primary focus of further upward movement of the discount rate.

YIELD PROFILE

FEDERAL INVESTMENT BONDS

.

THIS WEEK

1 WEEK AGO

1 YEAR AGO

1 Year

14.00

11.25

11.50%

2 Year

14.50

11.75

12.25%

3 Year

15.00

12.25

13.25%

4 Year

15.25

12.50

13.50%

5 Year

15.75

12.75

13.75%

10 Year

16.25

13.25

14.50%




AUCTIONS
BID DATE INSTRUMENT RESULT SETTLEMENT
Oct 04 T-BILL Oct 04 Oct 05
TARGET AMOUNT BID AMOUNT ACCEPTED AMOUNT
Rs.7.900 Bln.

Rs.12.800 Bln.

Rs.11.500 Bln.



MATURITIES

INSTRUMENT

DATE

AMOUNT

T-Bill

05 Oct

7,300 Mln

T-Bill

06 Oct

600 Mln

T-Bill

19 Oct

4,550 Mln




REPO RATES

 

THIS WEEK

1 WEEK AGO

1 YEAR AGO

Overnight

12.95

11.90

12.95

1 Week

13.25

11.50

12.75

1 Month

13.30

09.50

11.35

3 Month

13.10

09.60

10.55

6 Month

13.25

10.15

10.70

1 Year

13.55

10.60

N. A.




TREASURY BILL RATES
MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO

1 Month

14.50

10.75

12.00

2 Month

13.75

10.20

10.90

3 Month

13.65

10.25

10.65

4 Month

13.65

10.30

10.65

5 Month

13.60

10.40

10.70